- June 17, 2021
- Posted by: avantconsulting
- Categories: Insurance, Recommended Reads
What is Keyman/Key Person Insurance Singapore – Businesses are run by humans. Actual people who control the management of the company.
The quality of the management will usually determine how well the organization runs. This means the management team such as the Chief Executive Officer (CEO), other C Suite members and Directors are extremely important whether the company is big or small.
When either of this key persons face premature death, the disruption to the company can be huge.
For SMEs, the CEO or Director might be the main person that keeps the ship afloat and it will take some time to find someone who is capable of taking over the reins of the company.
What is Keyman/Key Person Insurance Singapore exactly?
The Key Person insurance is actually a Life Insurance policy that is bought by a corporate body. It is bought on the life of an owner, executive or critical person of the business. The company is the ultimate beneficiary of the policy and therefore also pays the premiums of the policy. Other terms for this form of policy is business life insurance.
What are some of the main concepts here:
- Company buys life policy on the life of the main personnel of the company
- This insurance is bought on persons whose death will be detrimental to the operation of the company
- For most SMEs, this can be the business owner or Director of the company
- Should the person pass away, the company is paid the beneficial amounts.
Why you or your company should consider getting a Keyman insurance?
Businesses are run by crucial persons and if this person were to pass away all of a suddenly, the company will probably require some funds to hire someone to cover the main person.
Key Person insurance is also available for disability coverage, in the case where the key person is unable to work due to severe disability.
In the event of the individual passing or suffering severe disability, the company is paid out the beneficial amounts.
This amount of money can be used to recruit and hire a replacement for the key person who has passed on. In the event that the company decide that it will not carry on business without the Keyman, the company or its shareholders can choose to use the funds to pay off debts, split it across shareholders, pay for severance to employees and generally to close a business in an orderly manner.
For a SME, the owner likely covers all the key roles of the company and therefore is a single point of failure on his or her demise.
Q: Who is Eligible?
A: The employer can apply this coverage for key employee between the age of 18 to 64 years old. The employee must be a Singapore Citizen, Singapore Permanent resident or a foreigner holding a valid pass issued by Singapore government and is residing in Singapore
Q: Who should be protected under Keyman/Key Person Insurance
A: An employee who is crucial to the operation of the business (e.g.: CEO, Directors, Management)
What are the categories of Loss Covered:
- Insurance to protect profits: To offset lost income such as lost sales from project cancellations due to the crucial person demise.
- Insurance to protect shareholders or partnership interest: To allow surviving partners or shareholders to purchase the financial interest of the deceased person.
- Insurance for anyone involved that is guaranteeing business loans or facilities: Value of coverage equaling the value of guarantee.
Cost of Key Person Insurance
The amount of insurance coverage is dependent on the requirements of the company and also its size and nature. It can go from anywhere from $100,000 to a few million.
Cost difference can come from either buying a permanent life policy or a term life policy. Permanent life policies usually cost more than Term life.
Cost of coverage can defer based on insured person’s health and age.
Summary: Should you consider getting Singapore Keyman/Key Person Insurance for your company members? And why?
- Yes, if you believe that this person is a core person to the survival or running of the company.
- Yes, if you believe that you will need some funds to find someone to substitute this core person.
- Yes, if you believe that without this core person, you need funds to wind down the company or settle certain debts.
- Yes, if you will need time and resources to train a new person for the role.
- No, if this person’s demise or disability does not affect the overall running of the firm.
- No, if this person can be easily replaced and not guaranteeing any loans or related securities.
*Note: This article does not constitute financial advice. Please contact your financial advisors for a case by case assessment of your situation or your needs.
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